Polaris Capital Management’s Bernard Horn (Trades, Portfolio) released his fourth-quarter portfolio last week, listing four new holdings in the Polaris Global Value Fund.
With the goal of capital appreciation and strong risk-adjusted returns, Polaris’ website says its portfolio managers invest in discounted but high-quality stocks in both developed and emerging markets.
Horn’s new positions for the quarter were L Brands Inc. (LB, Financial), Babcock International Group PLC (LSE:BAB, Financial), Cineworld Group PLC (LSE:CINE, Financial) and SK Hynix Inc. (XKRX:000660, Financial).
L Brands
The guru invested in 114,400 shares of L Brands for an average price of $49.89 per share, giving it 1.64% portfolio space.
The Columbus, Ohio-based retailer, which owns the Victoria’s Secret and Bath & Body Works brands, has a market cap of $12.63 billion; its shares were trading around $44.31 on Wednesday with a price-earnings ratio of 13.01 and a price-sales ratio of 1.05.
The Peter Lynch chart below suggests the stock is undervalued as it is trading below its fair value.
L Brands’ financial strength was rated 4 out of 10 by GuruFocus as it has issued new long-term debt over the past several years. Its Altman Z-Score, however, indicates the company is financially stable. Since its operating margin is expanding and it has a strong Piotroski F-Score of 7, its profitability and growth was rated 8 of 10. In addition, the company has a perfect business predictability rating of five stars.
Of the gurus invested in L Brands, PRIMECAP Management (Trades, Portfolio) has the largest holding with 6.82% of outstanding shares. Pioneer Investments (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Julian Robertson (Trades, Portfolio) and Charles Brandes (Trades, Portfolio) also established positions during the quarter.
Babcock International Group
Horn purchased 819,200 shares of Babcock International for an average price of 7.56 pounds ($10.50) per share, expanding the portfolio 1.47%.
The London-based company, which provides engineering support to a variety of industries, including aviation and nuclear, has a market cap of 3.34 billion pounds; its shares closed at 6.6 pounds on Tuesday with a price-earnings ratio of 10.53, a price-book ratio of 1.27 and a price-sales ratio of 0.76.
According to the Peter Lynch chart below, the stock is undervalued as it is trading below its fair value.
Babcock International’s financial strength was rated 6 out of 10 by GuruFocus. While its interest coverage ratio meets Benjamin Graham’s standard of 5, its Altman Z-Score of 1.64 indicates it is under some financial stress. The company’s profitability and growth was rated 8 of 10 as it has an expanding operating margin, a high Piotroski F-Score of 7 and a 3.5-star business predictability rating.
With 0.83% of outstanding shares, Francisco GarcĂ Âa ParamĂ©s (Trades, Portfolio) is the company’s largest guru shareholder. Horn holds 0.16%.
Cineworld Group
The investor bought 513,100 shares of Cineworld for an average price of 2.81 pounds per share. The trade had an impact of 0.78% on the portfolio.
The U.K.-based cinema company, which is the second-largest movie theater operator in Europe, has a market cap of 3.13 billion pounds; its shares closed at 2.28 pounds on Tuesday with a price-earnings ratio of 14.40, a price-book ratio of 0.87 and a price-sales ratio of 1.76.
Based on the Peter Lynch chart below, the stock appears to be trading close to its fair value.
GuruFocus rated Cineworld’s financial strength 6 out of 10. While the company has been issuing new long-term debt, it is manageable. In addition, its Altman Z-Score of 3.92 indicates the company is financially healthy. The company’s profitability and growth was rated 7 of 10 as its operating margin is expanding. It also has a moderate Piotroski F-Score of 5 and a 2.5-star business predictability rating.
Horn owns 0.04% of the company’s outstanding shares.
SK Hynix
Horn invested in 49,300 shares of SK Hynix for an average price of 81,332.3 won ($76.45) per share, giving it 0.66% portfolio space.
The South Korean semiconductor company, which manufactures random-access memory and flash memory chips, has a market cap of 58.17 trillion won; its shares closed at 82,400 won on Tuesday with a price-earnings ratio of 5.47, a price-book ratio of 1.72 and a price-sales ratio of 1.93.
According to the Peter Lynch chart below, the stock is undervalued as its trading below its fair value.
While the company is issuing new long-term debt, GuruFocus rated SK Hynix’s financial strength 8 out of 10 as it has sufficient interest coverage. In addition, its Altman Z-Score is high at 5.74. The company’s profitability and growth was also rated 8 of 10 as it has a high Piotroski F-Score of 7, a one-star business predictability rating and its operating margin outperforms 98% of competitors.
Horn holds 0.01% of the company’s outstanding shares.
Other trades
During the quarter, Horn also added to his positions in Greencore Group PLC (LSE:GNC, Financial), Teva Pharmaceutical Industries Ltd. (TEVA, Financial), Regal Entertainment Group (RGC, Financial), Taylor Wimpey PLC (LSE:TW.), BBA Aviation PLC (LSE:BBA) and Magna International Inc. (TSX:MG).
The current portfolio of 84 holdings consists largely of stocks in the financial services sector. By region, U.S. stocks represent the largest portion of the portfolio at 38%. According to its fact sheet, the fund slightly underperformed its benchmark, the MSCI World Index, in 2017 with a 20.61% return. The index posted a 22.4% return.
Disclosure: No positions.
